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The Securities and Exchange Board of India (Sebi) has come up with a consultation paper aimed at the very first review of regulations for collective investment schemes (CIS) in order to bring them on par with mutual funds. A CIS is an arrangement where people pool their money to invest in an asset, with returns and profits shared as per their agreement.

As per the regulator, many companies in India have been raising capital from investors through agro bonds and plantation bonds, which were in the form of a CIS, but without providing adequate protection to investors. Sebi believes that with no limits on investment, retail investors are the primary target for CIS schemes.

In one of the most high-profile cases, the regulator had cracked down on Sahara Group for its large-sized collective investment schemes.

Sebi aims to empower the Collective Investment Management Company (CIMC) to effectively discharge its responsibilities towards CIS investors. CIMC are entities that organize, operate and manage a CIS. They are entitled to raise funds from the public for these schemes.

Further, the markets regulator also proposes to introduce skin-in-the-game type regulations of mutual funds into the CIS ecosystem as well.

“The CIMC might be asked to have a continuing interest of not less than 2.5% of the corpus or 5 crore in the form of investment in the CIS. Also, a minimum of 20% of the salary/perks/ bonus/non-cash compensation (gross annual CTC) net of income tax and any statutory contributions (i.e. Provident Fund and National Pension System) of the designated employees of the CIMCs shall be mandatorily invested in the units of CIS in which they have a role/ oversight," Sebi wrote in the consultation paper on Friday.

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